Crude oil price rises after Iran downs US spy drone

The price of crude oil jumped today as tensions increased in the Middle East. Earlier today, Iran announced that it had downed an American spy drone that was in its airspace. Traders are now waiting for a response from Donald Trump, who is known for making hasty decisions. In recent months, tensions in the region have increased after the Trump administration failed to renew the previous waivers on Iran oil imports. In the aftermath, four oil tankers have been attacked at the Strait of Hormuz.

The Japanese yen eased against the USD after the Bank of Japan delivered its interest rates decision. As was expected, the bank left interest rates unchanged at the minus 0.10% level. In the monetary policy statement, the bank reiterated that global trade tensions, the rising protectionist tendencies, Brexit, and the weakening economy increased the risks of a further slowdown in the economy. On future interest rates, Governor Kuroda said that:

“As for monetary easing tools, we can cut our short- and long-term interest rate targets, ramp up asset purchases, or accelerate the pace of increase in base money. There is no change to our view to ponder various ideas including a combination of these steps depending on what’s most appropriate at the time.”

The US dollar declined today after the dovish statement by the Fed yesterday. As was expected, the bank left interest rates unchanged between 2.25% and 2.50% and hinted that a rate cut could be imminent later this year. Analysts expect the cut to come at either the July or September meeting. The bank is worried about the increasing risks on trade and the fact that the US economy is indeed slowing down.

The sterling declined sharply after the Bank of England (BOE) delivered its interest rates today. The bank left interest rates unchanged at 0.75% and indicated that it could raise rates if there is a smooth Brexit. Before the decision, investors were expecting an outright hawkish statement from the central bank. In the accompanying monetary policy statement, the bank said that:

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 19 June 2019, the MPC voted unanimously to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

EUR/USD

The EUR/USD pair gained by 70 basis points to a high of 1.1305. This was a continuation of a rally that has been going on since Tuesday this week. On the hourly chart below, the momentum indicator has continued to move up while the price is above the 25-day and 50-day moving averages. The RSI has moved above the overbought level of 70. There is a likelihood that the pair will move up, to test the important resistance of 1.1320.

USD/JPY

The USD/JPY pair rose sharply after Kuroda’s press conference. The pair moved from a low of 107.45 to a high of 107.87. On the four-hour chart, the pair is below the short and medium-term moving averages. The pair is also close to the lowest level since January this year. The RSI, which was in the oversold level has moved up a bit while the accumulation/distribution indicator has continued moving up. The pair will likely resume the downward trend as investors ponder on the next steps by central banks.

GBP/USD

The GBP/USD pair declined sharply after the BOE delivered its interest rates decision. The pair, which had previously reached a high of 1.2725 declined to a low of 1.2680. On the hourly chart below, the pair’s price is slightly above the middle line of the Bollinger Bands, while the RSI, which was previously above the overbought level of 70 has started to decline. The pair is likely to continue moving lower to test the important support of 1.2650.